How to Profit From the Worst Financial Crisis since the Great Depression

Casey Research

By Justin Spittler

Brazil is heading for disaster…

Brazil is the world’s eighth biggest economy and the fifth most populated country. It’s the “B” in “BRICS,” Wall Street’s acronym for big emerging markets with huge growth potential. Russia, India, China, and South Africa are the other four BRICS.

Brazil’s economy grew rapidly from 2000 to 2010. Wall Street expected Brazil to keep growing fast and to make a lot of money for investors. Instead, it has fallen into its worst economic downturn since the 1930s…

Brazil’s economy shrunk by 3.7% last year. Economists expect it to shrink another 3% this year. For comparison, the U.S. economy only shrunk 0.9% in 2008 during its worst financial crisis since the Great Depression.

Bloomberg Business reports that this would be Brazil’s “deepest back-to-back recession on record, according to data from national economic research institute [IPEA] dating back to 1901.”

•  Crashing commodity prices have slammed Brazil…

Commodities account for about half of Brazil’s exports. Its top three exports are oil, soybeans, and iron ore, the key ingredient in steel. All three commodities are trading at their lowest prices in years.

Brazil’s political situation is also a mess. The current president of Brazil, Dilma Rousseff, is a socialist. Since taking over in 2011, she has wrecked Brazil’s finances. She took Brazil from a 2.3% government surplus in 2011 to a 0.6% deficit by 2014.

•  Brazil’s currency, the real, has plunged 40% against the U.S. dollar in the last two years…

And Brazil’s stock market has collapsed. The iShares MSCI Brazil Index Fund ETF (EWZ), which tracks Brazilian stocks, has plummeted 51% in the last year.

Brazil’s annual inflation rate has jumped to 10.7%, its highest level in 12 years. The country’s unemployment rate is 9% and rising. It was just 6.6% last year.

•  On Monday, Business Insider published a front page story titled “Things are so bad in Brazil they had to cancel Carnival”…

Carnival is Brazil’s most famous holiday. The five-day celebration attracts more than a million tourists every February.

Financial Times reported two weeks ago:

Towns and cities across Brazil are being forced to scrap the annual carnival parade as the country is braced for what is expected to be the worst recession since at least the 1930s.

Campinas, home to 3m people in São Paulo state, is among the cities that has been forced to rein in the festivities… [T]he local government could not afford this year’s carnival bill of R$1.3m ($322,000) due to a sharp drop in sales tax revenues from struggling local businesses…

Macapá, capital of the northern state of Amapá, and Lavras do Sul in the south have also put festivities on hold, with more municipalities expected to follow suit in the next couple of weeks.

•  At Casey Research, we look for bargains in crisis markets…

Casey Research founder Doug Casey literally wrote the book on investing in crisis markets. Doug’s New York Times best-selling book, Crisis Investing, teaches readers how to make money buying dirt-cheap assets in bombed-out countries.

Nick Giambruno uses this strategy in Crisis Investing. Nick looks for markets at the “point of maximum pessimism.” When a country is in crisis and everyone is selling, Nick looks to buy. That’s when you can buy a dollar’s worth of assets for a dime or less. According to Nick, “a crisis is the only time you can be sure to get assets at bargain prices. It’s one of the world’s great wealth secrets.”

Nick travelled to the European island of Cyprus soon after a banking crisis there in 2013. The Cyprus stock market was down 99%. Nick recommended buying high-quality businesses that were trading at absurdly low prices. His readers made gains of 97%, 172%, and 214% in less than two years.

•  Nick has been watching the crisis in Brazil…

In October, Nick told his readers about a Brazilian company that should continue to make money even as Brazil’s economic crisis gets worse. This stock is already a bargain…but Nick thinks it will get even cheaper.

Nick explained in January’s issue of Crisis Investing.

It’s not time to jump in quite yet. First, we need a catalyst that thrusts Brazil onto the front pages of First World newspapers… something that gets Wall Street to say, “Sell anything Brazilian.”

Something that flushes out the remaining foreign investors there. Something that will have the same psychological effect of shouting “Fire!” in a crowded movie theater.

Brazil has had five currency crises over the past 100 years. Nick says it’s due for another one. He doesn’t think a few canceled Carnival parades is the “headline moment” he’s waiting on. But that moment is getting close...

Yesterday, Nick gave a “Buy Under” price for his top Brazilian stock. Nick likes the company at its current price, but he thinks it will get even cheaper. If Brazil continues to unravel like Nick expects, his readers will get a chance to buy this company at a deep discount and lock in a 6% dividend.

You can get in on Nick’s Brazil play by signing up for a risk-free trial of Crisis Investing. Click here to learn more.

•  E.B. Tucker, editor of The Casey Report, is in Brazil right now…

E.B. went to São Paulo, Brazil's financial capital, to get a boots-on-the-ground perspective on Brazil's struggling economy.

E.B. says things are bad in Brazil, but life goes on…

I’m in São Paulo today and will be in Rio this weekend. I can tell you for certain they're not canceling Carnival.

This would be like saying North Dakota isn’t celebrating Christmas because the town of Williston, the heart of North Dakota’s oil country, canceled its town nativity scene.

Brazil’s more than 200 million residents will celebrate Carnival as usual next month. Some small towns will cancel parades or scale back the level of city support for the celebration...but the show will go on.

Major recessions are the norm for Brazil. As we mentioned, the country has had five currency crises in the last hundred years. E.B. thinks Brazil will recover…

Brazil is suffering. Inflation is in the double-digits. The debt markets aren’t receptive. These things happen during a recession…but that doesn’t mean it’s in a crisis.

Brazil has been here before and they’ll make it out again. I think stronger in the end.

I'm digging deep into the situation in Brazil right now. I'll have much more to say in an upcoming issue of The Casey Report. We're going to take advantage of Brazil's recession. Several truly world class businesses now trade at discount prices.

You can read E.B.'s boots-on-the-ground take on Brazil by signing up for a risk-free trial of The Casey Report.

Chart of the Day

Brazil’s currency has hit an all-time low…

Today’s chart shows the performance of the Brazilian real versus the U.S. dollar. The real hit a record low against the U.S. dollar in September…and kept falling.

That’s bad news for Brazilians who earn a living in reais. But it’s great news for Americans who visit Brazil, as E.B. points out.

I'm living like a king down here since the Brazilian currency, the real, is so weak against the dollar. I got 4.12 reais for every dollar I exchanged last weekend. In 2011, the real was much stronger…1.6 to 1 against the dollar.

4.12 is weak but it might not be weak enough. I bet the real will be even weaker if I come back after the Summer Olympics.

A weak real also makes it cheaper for Americans to buy Brazilian stocks. That’s one reason why two of Casey’s top analysts, E.B. Tucker and Nick Giambruno, are focused on opportunities in Brazil right now.

Tags: crisis investing, brazil,